May 29, 2015, Vol. 33, No. 11

Wire-pullers of the twenty-first century

Markets are just as efficient as the people who operate in them. They are just as cool, calm and calculating as the humans who will buy high and will sell low. Still, they are devilishly hard to beat. Credit, restaurant chains and platform companies are among the topics under discussion.

Yesteryear’s great idea

Like New York City taxi medallions, bonds started appreciating at around the time of the birth of Beyoncé. So consistently have they performed that serious people have come to judge them, bonds and medallions alike, as intrinsically safe. Not the best idea on which to build a leveraged portfolio.

Keynesian beach book

“Universal Man: The Seven Lives of John Maynard Keynes,” a new biography by Richard Davenport-Hines, is not just a book for the admirers of a certain errant economist. It is a book for the lovers of superb writing, fine portraiture and novelistic story-telling

Lots of return

With April housing starts leaping by 20.2% and April existing-home sales declining by 3.3%, the American residential real estate market last week was alternatively reported to be thriving and dwindling. We herein proceed to clear up the confusion. Bullish on terra firma—at a price.

May 15, 2015, Vol. 33, No. 10

On the systematic mispricing of debt

Fidelity & Guaranty Life is the firm that “helps middle-income Americans prepare for retirement,” or so claim its copywriters. If so, the life insurer’s investment department, with its RadioShack trifecta, itself needs help. Certainly, it’s getting none from the world’s central banks—or from the post-1981 interest-rate zeitgeist.

America the unhedged

Native-born citizens of the United States are famously mono-lingual. Likewise, they are mono-monetary—dollars are what they cling to, whether or not the home currency is appreciating against the alien alternatives. How to diversify out of green money?

Balance-sheet story

Constant readers may remember the company herein featured. Some will regret having ever heard the name. As central banks have gained prestige, our subject has lost market cap. What it has not lost is its speculative appeal.

Pick your own data

“Monetary Policy It’s Data Dependent” is the legend on the t-shirt that the president of the San Francisco Fed waved to the TV cameras Monday morning when Steve Liesman asked him, So when will the Fed raise interest rates? We deconstruct the central banker’s non-answer.

May 1, 2015, Vol. 33, No. 09

Revenge of the reciprocal

Finance is nothing if not symmetrical. There are assets, and there are liabilities. There is demand, and there is supply. For every policy yin, there is a policy yang. The unscripted consequences of post-2007 monetary intervention is the subject at hand.

Mother Earth retraces

Average Iowa farmland prices tumbled by 8.9% last year, the first and only meaningful decline since 1986. The nearly three decade-long bull market in tillable American real estate is over, as the city-dwelling editors of Grant’s weigh the evidence. Grain prices, land prices, weather, inflation and deflation are the topics under discussion.

Elevator going down

Let it be said, writes Evan Lorenz, that China has the best airports, the fastest trains and the comeliest empty residential towers in the world. I can say this with some authority after spending last week in the People’s Republic.

Welcome back, Sumner Slichter

On Tuesday, as the FOMC sat down to weigh a decision to raise the funds rate for very nearly the first time in modern memory, the New York Times produced a story to showcase the argument for a much higher inflation target. Paging Prof. Slichter, 1950s-era father of the “new inflation.”

Radical negative one

David Einhorn, long-short equity investor par excellence, led off the Grant’s Spring Conference with a long idea and a short-sale candidate.
He prefaced his stock picks with a grand tour of interest rates, such as they are.

Up with India

"India is one of the biggest structural changes taking place in the world today," Jon Thorn, manager of the India Capital Fund, told the Grant's audience, "and, unlike, say, Greece, it's a very positive one."

Drill they must

"I've run through a lot of industries as they've involuntarily entered my domain," bankruptcy lawyer James Sprayregen, explained to the Grant's faithful. Next up, he said: the E&P segment of the energy business.

Leaders have to lead

David Abrams, a top-flight Boston investor whose nearly invisible public profile led The Wall Street Journal to speculate that he might be a unicorn, sat on stage at the Plaza Hotel fielding questions.

Liquidity to the max

125 pages of charts and graphs complemented lunch at the Grant's event. Stretching from the dawn of financial time to the present, the pictures, compiled by Bank of America Merrill Lynch strategist Michael Hartnett, amounted to a kind of museum of astounding facts

Something to shock

Bill Gross observed that the Fed, by remitting the interest in earns on government securities, in effect absolves the Treasury of its obligation to pay. You might even think of it as a species of default, said the king of bonds.

The Bigger Short

Paul Singer, founder of Elliott Management Corp. and among the earliest proponents of the 2006-08 trade that Michael Lewis popularized in "The Big Short," took the Plaza stage to propose an even bigger short.

Not so safe

J.P. Morgan Chase has hired 8,000 people just to comply with the onslaught of post-crisis regulation. At some higher level of regulatory intensity, the Fed may just achieve its mandate for full employment. Its mandate for financial stability? That’s another story.

April 3, 2015, Vol. 33, No. 07

Janet Yellen, say hello to Bill Martin

Moving to free-market interest rates from the governmentally administered kind is the issue of the hour—and of the day, month and year, in the opinion of this interest-rate observing journal. Happily, the trick has been done before.

Use as directed

On July 15, 2014, on the ceremonial stage of her second Humphrey-Hawkins testimony, Janet Yellen singled out biotech (and social media) stocks for their "substantially stretched" valuations. Since that ex cathedra pronouncement, the Nasdaq Biotechnology Index has rallied by a cool 39%. And now?

Turn of the tide?

Now he's got a blog

In his maiden post on the Brookings Institution Web site, Ben Bernanke contends that fragile economic conditions, not radical monetary policy, pushed interest rates to the floor. Did the former chairman check with the Bundesbank?

March 20, 2015, Vol. 33, No. 06

Operation Barn door

Bullish even now

"Settle in" for a period of relatively weak oil prices, Rex Tillerson, CEO of ExxonMobil, resignedly advised analysts the other day. Reconsider the values inherent in a pair of orphaned energy stocks, Grant's proposes.

Monetary diversity

That currency in your wallet, Ms. or Mr. American, is it all the same color green? If so, you are in violation of the time-honored investment precept of diversification. The case for diversifying into a new and different color combination

March 6, 2015, Vol. 33, No. 05

Inflation can surprise you

The meager rate of rise in the CPI for 2014—up by just 0.8%—made news by the very fact of its meagerness. Since 1929, only nine other years have featured an a comparably weak increase in the cost of living. The meaning of this arresting fact is the subject at hand.

Get out of town

You’ve decided to vacation on the French Riviera with family, in-laws, cousins. You could book six or eight hotel rooms—or a single villa in Saint-Tropez. This being the 21st century, you can, and you do, book the villa. Now unfolding is a bearish story on the company that helped you secure it.

Last to first

Gold needs a hug—as central bankers run riot, the legacy monetary asset languishes at $1,200 an ounce—but don’t go feeling sorry for a certain unesteemed and over encumbered mining company. Its fortunes are on the upswing.

Cash for cops

The fact is that currency, under the law, in large denominations. has become non-negotiable. Just try to withdraw $100,000 in hundred-dollar bills from your local JP Morgan Chase branch.The burden of proof is on you, Mr. or Ms. Moneybags.

In the petrified forest of debt

Mistaken identity

Either the great lake of redundant crude oil points to long-term oversupply in fossil fuels, or it doesn't. The price of oil hangs in the balance. Not so--by rights, we herein contend--the price of the shares of a certain value-laden chemicals company.

File under 'opportunity'

Like any other branch of distressed investing nowadays, the secondary market in illiquid partnership interests is short the essential element of distress. But that doesn't mean there's nothing to plan for.

Leaving something to chance

Two thirds of investors just surveyed by Citigroup said "action from central banks in Europe and the U.S. would be the principal force driving credit market spreads" in 2015. The principal force? More than even the myriad events that the central banks don't control and can't anticipate?

January 23, 2015, Vol. 33, No. 02

Havens to hide in

House of mirrors

Ultra-low interest rates have facilitated bloated inventories and grandiose building plans at a certain high-end retailer. When the roof caves in the aggrieved bulls can take their complaints, or some of them, to Janet Yellen.